Monday, March 30, 2015

Collection: Ensure Good Faith in Pleadings

     Virginia Code §8.01-271.1, and its Federal equivalent Rule 11, provide for sanctions against litigants and\or attorneys who file frivolous pleadings or motions. Under the Virginia Code and the Federal Rule, a signature attached to a pleading or motion constitutes a certificate that:
     1. The signatory has reasonably inquired into the facts and that the claim is well founded in fact, and warranted by existing law, or that there is a good faith argument for the extension, modification or reversal of existing law, and
     2. The pleading or motion is not interposed for an improper purpose (i.e. delay or harassment).
     Sanctions include the payment of reasonable attorney fees and expenses incurred as a result of the frivolous pleading or motion. So, be sure of what you sign when you sign it!

Monday, March 23, 2015

Foreclosure: Deposits

     Virginia Code §55-59.4(A)(2) permits the trustee to require of any bidder at any sale a deposit of as much as ten percent of the sales price, unless the deed of trust specifies a higher or lower amount. However, because the statute is not mandatory, the trustee is given the right to waive the deposit if he deems it appropriate, unless the deed of trust requires a specific deposit. The trustee should also consider using a fixed amount as the deposit rather than a percentage of the sales price. Using a percentage of the sales price as the method of determining the required deposit often results in confusion, and the successful bidder has either too much or too little money to deposit. A fixed deposit avoids the confusion and allows all potential buyers to know exactly how much money to bring to the sale to deposit. The fixed deposit should not be excessive, but should be of a sufficient amount to ensure that the successful bidder completes the closing of the sale.

Monday, March 16, 2015

Real Estate: Foreclosing on Homeowner Association Liens to Secure an Interest in Real Estate

     In prior editions of Creditor News (which can be viewed at we have been discussing the benefits of using real estate to improve creditors’ positions. As I have emphasized, properly securing debts through real estate could make the difference between collecting the funds and incurring a loss. In this blog, we will review the benefits of using homeowner association liens to aid in the collection of your debt. In previous Creditor News we reviewed the special procedures for the collection of homeowners association dues under Virginia Code §55-516. We will now review the procedures for suits to foreclose on the lien.
     Suits must be brought within thirty six months of filing, but after the perfection of the lien. The homeowner’s association may sell the lot at a public sale, subject to prior liens. There are detailed requirements in the code, a brief summary of which include the following:
     1. The association shall give notice to the lot owner prior to advertisement as required in the code.
     2. After expiration of the 60-day notice period, the association may appoint a trustee to conduct the sale.
    3. If the lot owner meets the conditions specified in this subdivision prior to the date of the foreclosure sale, the lot owner shall have the right to have enforcement of the perfected lien discontinued prior to the sale of the lot. Those conditions are that the lot owner: (i) satisfy the debt secured by lien that is the subject of the nonjudicial foreclosure sale and (ii) pays all expenses and costs incurred in perfecting and enforcing the lien, including but not limited to advertising costs and reasonable attorneys' fees.
     4. In addition to the advertisement requirements, the association shall give written notice of the time, date and place of any proposed sale in execution of the lien, and include certain information required in the code.
     5. The advertisement of sale by the association shall be in a newspaper having a general circulation in the city or county wherein the property to be sold, with certain information requirements as set forth in the code.
     6. Failure to comply with the requirements for advertisement contained in this section shall, upon petition, render a sale of the property voidable by the court.  
     7. In the event of a sale, the code sets forth bidding and proceeds application procedures.
    8. After sale, the trustee shall deliver to the purchaser a trustee's deed conveying the lot with special warranty of title.
     9. After completion, the trustee shall file an accounting of the sale with the commissioner of accounts.
     We have experienced attorneys and staff who can examine title, file homeowner association liens, and litigate to enforce the same.

Monday, March 9, 2015

Bankruptcy: ERISA Funds, the Bankruptcy Estate and Homestead Exemptions

     In the case of Philips v. Bottoms, Judge Payne of the United States District Court at Richmond, Virginia, upheld a Bankruptcy Court ruling that the Virginia homestead exemption, Virginia Code §34-34, was not preempted by ERISA, and that the bankruptcy trustee could claim a portion of an individual retirement account (IRA) not funded by the debtor’s funds from an ERISA-qualified plan.
     In Phillips, it was disputed that the IRA was not an ERISA-qualified plan. However, because the debtors used funds from an ERISA-qualified plan to create the IRA, the debtors contended that the exemption applicable to an ERISA-qualified plan exempted the IRA because it was created by funds having their origin in such a plan. The Bankruptcy Court held that the IRA was property of the bankrupt estate and that Virginia Code §34-34 was not preempted by ERISA. The Court further held that the debtor’s claimed exemption should be allowed in the amount of $21,532.
     In the Bankruptcy Court, the trustee sought to thwart the claim that the IRA funds were partially exempt by arguing that Virginia Code §34-34 was preempted by ERISA and therefore was not available to protect any part of the IRA from the claims of creditors. The Bankruptcy Court allowed $21,532 of the $48,858 in interest in the IRA because the parties had agreed that if an exemption was allowable at all, that was the correct amount.
     The District Court, in its review, found that although the federal bankruptcy provisions permitted exemption of a payment under a pension to the extent reasonably necessary for the support of the debtor and any dependent, Virginia had enacted an alternative exemption provision, found in Virginia Code §34-34. The state provision, like the federal one it replaced, limited the exemption of retirement benefits. However, rather than limiting the exemption to the extent reasonably necessary for the support of the debtor and his dependents, the Virginia law provided instead that the exemption should not apply to the extent that the interest of the individual in the retirement plan would provide an annual benefit in excess of $17,500. The District Court concluded that given the legislative intent underlying the Bankruptcy Code, it was logical to conclude that the limit on pension plan exemptions was Virginia’s attempt to set an exemption level appropriate for the Commonwealth, precisely as was envisioned by Congress when it revised the Bankruptcy Code.
     The District Court affirmed the Bankruptcy Court’s decisions that the debtor’s interest in the IRA was part of the bankruptcy estate and that Virginia Code §34-34, even if theoretically preempted by §514(a) of ERISA, was saved from preemption by §514(d) of ERISA.

Monday, March 2, 2015

Collection: Creditors Bill

     The action to force the sale of real estate to satisfy a judgment is called a "Creditor's Bill." This action is governed by Virginia Code §8.01-462:
                     Jurisdiction to enforce the lien of a judgment
                     shall be in equity. If it appears to the court
                     that the rents and profits of all real estate subject
                     to the lien will not satisfy the judgment in five years,
                     the court may decree such real estate, any part thereof,
                     to be sold, and the proceeds applied to the discharge
                     of the judgment.
     Although the action may be costly, given the right judgment it is an effective collection tool. Determining what judgments are "right" requires experience and good judgment.